Capital Ratios as Determinants of Profitability: Evidence from Deposit Money Banks in Nigeria

The study examines capital ratios as determinants of profitability in Deposit Money Banks in Nigeria. Capital adequacy of banks has become both local and global issue and this is why the Central Banks of virtually every nation carry out periodic banking sector reforms. The study is anchored on the Incentive-Based Theory, using data obtained from the financial reports of ten deposit money banks, covering the period 2005 to 2023. A panel regression technique is employed and the estimation results show that Capital-to-Equity Ratio (CAPEQ) is the strongest driver of bank profitability (PAT). Equity-to-Asset Ratio (EQTA) and Liquidity Ratio (LQDTY) are also found to have positive effects on profitability of deposit money bank in Nigeria. The study therefore, stresses the need for the Nigerian deposit money banks to focus on maintaining optimal capitalization levels, by aligning with Basel III standards, improving credit risk management and enhancing the quality of risk-weighted assets.